E-letter: Outsider trading

Despite last week’s convulsions in the stock market, I resolved to ignore stocks in this note. It’s all people are talking about. So I tried to figure a way to write around the issue, and I can’t. After all, there it is. So….

I like to manipulate the stock market. Everybody does. Several years ago, I decided to buy Caterpillar (CAT). I knew of new mining ventures in our Far North, in Africa, South America and huge construction projects in Asia. I assumed increases in orders would show up as increases in share values, and I was right. That is a value assessment.

Kerry Knudsen

Kerry Knudsen

However, I also assumed an increase in share values would show up as increases in demand as program traders kicked in. That was not a value assessment, so much as an attempt to second-guess the actions of other traders, or manipulation.

I did OK on that trade, got out in time, etc. I also did well back in the ’90s, buying a mutual fund called Precious Metals that was heavily invested in Bre-X. Something moved me to sell in December of ’96, and all hell broke loose in March. I made my money, but everybody that stayed in lost it all, to the tune of about $6.5 trillion, adjusted to current dollars. I made no value assessment; my survival was plain, dumb luck.

Those are just two minor examples of a two-bit player in Canada hoping to make some money on the market, and hoping to out-guess the variables. And then there was WorldCom, a classic case of market manipulation led by Bernard Ebbers — a Canadian, now permanent snowbird spending his winters and summers in a Louisiana prison with no hope of release until 2028.

 

The cases go on and on, until this week, when Mexico finally recaptured Joaquín (El Chapo) Guzmán. What has El Chapo to do with stock-market manipulation? Nothing, I guess, unless we want to go a long stretch and say he was manipulating the price of pharmaceuticals. Coincidentally, the name of Bre-X’s geologist was also Guzman; Michael de Guzman. He either fell, jumped or was pitched from a helicopter over the jungle before he could testify.

Before we get waayyyy out in the weeds, let’s just say the stock market is manipulated. It is manipulated by corrupt executives like Bernie (“I don’t have anything to apologize for.”) Ebbers, by computer programs, by brainy technicians and by criminals.

It is also manipulated by governments. As I write this on Monday, the Hang Seng is down 565, demonstrating that you can manipulate appearances, but sooner or later the piper has to be paid. (Google Pied Piper of Bremen.)

We are just a small player in Canada, trying to make a buck. I understand that most businessmen in Canada today are very concerned about the future. And we may as well be. Businessmen have been concerned about the future for thousands of years, and many indicators, including the markets, are of concern.

 

But China’s crash is not based on a value assessment, as near as I can tell. It is based on its manipulation. And if you think the U.S. has its comeuppance in view, you may be right. Trillions of dollars in taxpayer stimulation may have kept the economy up during Obama’s tenure, but no amount of stimulation can sustain an economy that has spent its energy. However, that correction, too, assuming it happens, will be to correct the illusion, not the value.

Let’s look as facts. It appears a fact that we will be receiving 25,000 Syrian refugees in the immediate future. Each one of those refugees will require a bed, a chair, a table, a drawer, a floor and so on…. This is over and above the normal demands of our usual immigrant flow.

In addition, immigrants that have been here for a while may have started in relatively crowded living spaces, sometimes from necessity, and sometimes simply because they are accustomed to less personal space in their home countries than we are. However, either way, the effect is the same, and as people begin to acclimate to Canada’s wider spaces, to get settled with more income and more desires for newer and bigger living spaces, they will continue to put pressure on growth.

Added to that, Canada still has all the basics for sustainable growth in industry. We have natural resources, except oil. Oil has suddenly become a liability. Is that weird, or what? Back in the Bre-X days, prospectors in Canada’s Oil Sands said the sands would never be profitable until the price of oil went above $32 a barrel. So it went to $145. Then it went to $32. So this story could be about price manipulation in oil. But it won’t.

 

To be clear, I am concerned about the flipflopping markets in stocks, commodities and gold. I am not concerned about the value in Canadian labour, goods and services. In fact, if we can get China to deal with reality for a few months, get the Americans to focus on their eternal election cycles and move into areas where we more visibly support the human element in Canada, I think things will be just fine. In fact, I’d buy stock in it.

So here we are at the dawn of 2016. My road leads forward. Might as well. It’s the only one there is, and there are lots of friends to walk with for a while.

Bonne journée.

 

 

 

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Comments

  1. Kerry, i have always enjoyed your writings as they offer a fine balance between our (small) woodworking world and our reality surrounding that. You have a comforting way of giving the reader insight and hope regardless of how crazy things are. I often feel economic pressures and therefore stress are self induced, such as you mention, the stock market. But these fears, once you recognize that we may be constantly complicate our lives, yet we fail to grasp the really important issues, like health and friends. Maybe we should concentrate more on each other and step out of the race from time to time, as it were. RK

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